[Arnav is a student at Rajiv Gandhi National University of Law.]
Kick-starting a business can be an exciting endeavour while also presenting a plethora of opportunities for exponential growth. However, with new opportunities to grow come uninvited challenges. One such challenge that is not particularly welcomed with open arms by the business community is competition. While competition in the market greases the wheels of a growing economy, it can also take on an unhealthy character when businesses resort to unethical tactics and anti-competitive activities.
Recently, the European Commission (EC), i.e., the antitrust regulator in the European Union (EU) found Vifor Pharma, a pharmaceutical company, liable for airing erroneous information about its competitor, Monofer. Vifor, found to be a dominant enterprise in the iron medicine industry, was alleged to have foreclosed competition by circulating potentially misleading information about the safety standards of Monofer, its closest competitor. The EC found that Vifor’s conduct amounted to an abuse of its dominant position and accordingly, Vifor was required to undertake certain commitments to rectify the effects of its anti-competitive behaviour. This ruling has sparked debate and raised questions about the unhealthy competitive tendencies of dominant market players to get ahead by disparaging their competitors.
This article examines the manner in which disparaging conduct employed by dominant enterprises stifles fair competition, and assesses the approach adopted by competition regulators across the world to address the same. Further, it delves into the provisions of the (Indian) Competition Act 2002 (Competition Act), and highlights the manner in which ‘commitment and settlement’ provisions incorporated by the Competition (Amendment) Act 2023 (Amendment Act), coupled with the competition compliance program (CCP), could address anti-competitive disparaging conduct.
Unfair Tactics: Manipulating Consumer Trust to Harm Competitors
Disparaging a competitor entails disseminating false information in the market about the ability of such competitor’s products or services to meet the market standard threshold. The intent behind such criticism is to influence customers’ purchasing decisions by creating a fear of buying subpar products or availing subpar services. Often, such practices are dealt with under unfair marketing rules or commercial litigation. However, this article seeks to examine the anti-competitive aspect of such practices.
Disparaging conduct, when employed by a dominant enterprise, can raise serious competition concerns. Any dominant enterprise in its relevant market has more often attained the trust of consumers by maintaining its market position. By spreading misleading information about their competitors, such a dominant enterprise exploits the trust of consumers by persuading them to boycott the competitor’s products / services. Such conduct has the potential to drive existing competitors out of business, thereby foreclosing competition in the market.
Case Studies in Market Abuse: How the EU Authorities Address Disparaging Conduct
Article 102 of the Treaty on the Functioning of the European Union (TFEU) stipulates the rules for the prohibition of abuse of a dominant position. Foreclosing competition by disseminating misleading information squarely falls within the scope of Article 102. Additionally, the disparagement of competitors by a dominant enterprise can be witnessed as a novel type of abuse of dominant position. Such conduct requires regulatory interventions to ensure that enterprises with a significant market position compete fairly.
For instance, the French Competition Authority in the Sanofi-Aventis case determined that Sanofi abused its dominant position under Article 102 of TFEU by strategically labeling its products as “non-substitutable,” thereby denigrating the safety standards of generic competitors of its drug Plavix on the French Clopidogrel market. Similarly, the Italian Competition Authority and European Court of Justice in the case of Avastin/Lucentis found that Roche and Novartis, two Swiss pharma giants, had entered into an agreement pursuant to which they disseminated erroneous information to raise concerns in the market about the safety of a drug called Avastin in order to promote the sales of another drug called Lucentis. This agreement amounted to collusion between the two companies which restricted competition in the market. Likewise, the Danish Competition Authority held that Falck, an ambulance service provider, has abused its dominant position by creating uncertainty in the market about BIOS, its competitor, as a supplier of ambulance services, thereby driving BIOS out of the market.
The above cases across countries in the EU demonstrate that disparaging and denigrating competitors by spreading false claims can hinder merit-based competition in the market and can invite antitrust scrutiny.
Navigating the Indian Competition Landscape: The CCI’s Stance
In India, there are no specific cases recorded before the Competition Commission of India (CCI) where the disparagement of competitors was held to be anti-competitive and have an appreciable adverse effect on competition. However, Colgate-Palmolive v. Anchor Health and Beauty Care Private Limited was a cornerstone case where the Madras High Court demarcated the boundaries between permissible comparative advertising and actionable disparagement, elucidating that while market players can compare their products to competitors, the same cannot cross the line into making falsified claims or denigrating the competitor’s products. Similarly, in the case of PepsiCo Inc. v. Hindustan Coca-Cola Beverages Private Limited, the Delhi High Court, while dealing with the matter of copyright and trademark infringement in an advertisement, observed that disparaging advertisements of the plaintiff's products by the defendant resulted in the dilution of goodwill and reputation of the plaintiff. An anti-competitive impact analysis of disparaging conduct is yet to be taken by the Indian regulatory authorities.
Nevertheless, the provisions of the Competition Act are sufficient to encompass disparaging conduct under the ambit of the Competition Act. For instance, like Article 102 of the TFEU, Section 4 of the Competition Act 2002 provides the blueprint for abuse of dominance scenarios. Moreover, Section 4(2)(c) encapsulates practices that result in denial of market access in any manner. Therefore, if the disparagement of a competitor by a dominant enterprise has the effect of driving competitors out of the market, leading to denial of market access, it would amount to a violation of Section 4(2)(c). It is therefore suggested that disparaging competitors be considered a novel form of abuse of dominant position under Section 4 of the Competition Act.
From the EU to India: How Commitment Mechanisms address Abuse of Dominance and Misleading Claims
Ordinarily, anti-competitive conduct in India is penalised with fines and other monetary penalties. However, monetary penalties in this instance cannot repair the loss of reputation and goodwill that has been caused by the dominant entity. Alternatively, commitment mechanisms can play a vital role in addressing conduct amounting to disparagement of a competitor by a dominant enterprise. For instance, in the abovementioned case of Vifor, Vifor offered commitments to launch a cross-channel sweeping campaign to rectify the misleading information spread about Monofer’s product and to not engage in external promotions and statements about the competitor's product.
The EC has acted as a torchbearer to introduce the commitment and settlement mechanism via the incorporation of Article 9 of Regulation 1/2003. Initially, the regulation covered cases involving cartels and vertical breaches; however, the regulation, by widening its ambit, also encapsulated instances of abuse of dominant position. Moreover, the exercise of the commitment mechanism in the EU is not tantamount to an admission of guilt, as reiterated in the case of Commission v. Alrosa Co. Ltd.
In India, in light of the fast-paced evolving market dynamics, the Amendment Act has significant revamped the Competition Act. One such advancement is the commitment and settlement mechanism. Both commitment and settlement provisions can be exercised against the order passed under Section 26(1) for alleged violations of Section 3(4) (vertical restraints) and Section 4 (abuse of dominance). Moreover, a dominant enterprise can be mandated to take certain measures to ensure regulatory compliance. Further, the CCP conducted by the CCI can act as a tool to guide business players on the possible repercussions that they may have to face should they engage in anti-competitive conduct such as disparaging their competitors.
Way Forward
The EU decision on Vifor has once again opened the doors for antitrust regulators to address the anti-competitive disparaging conduct persisting in the market. Disparaging competitors can mislead consumers to boycott competitor’s products, thereby driving them out of the market. Moreover, as demonstrated by the EU cases, disparaging conduct in the pharmaceutical industry has to be dealt with strictly as such activities can have a significant impact on the health of consumers.
While it is natural for a market player to prioritize profits and strive for success, sabotaging competition by disseminating false claims about competitors skews a fair market space and impedes competition. Antitrust regulators must take a proactive stance against such unethical and anti-competitive practices. Strengthening CCPs can facilitate transparency and ensure accountability from business players for their anti-competitive activities. Such programs can promote training and internal reporting mechanisms to detect any kind of disparagement of the competition early.
Additionally, the commitment mechanism will also provide entities with the opportunity to avoid incurring heavy penalties, and voluntarily come forward and rectify their anti-competitive behaviour in the market. The intent behind the commitment and settlement mechanisms is to foster a more cooperative approach between the regulators and the market players. In the end, the commitment and settlement mechanism, coupled with CCPs, can encourage market players to rethink their business strategies, emphasizing fair play over disparaging tactics. While it is not unlawful to excel in one’s business, it should not be done at the cost of bringing down one’s competitors.
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